Sun Microsystems Is Blazing a Red-Hot Trail in Computers : $300-Million AT&T Deal Moves Firm to Set Sights on IBM

The whiz kids at Sun Microsystems might seem a little smug these days. Along with a lot of other people, Sun's youthful executives think they've pulled off the deal of a business lifetime, a pact with American Telephone & Telegraph that could assure the brash company a pivotal role in the treacherous computer industry.

"I'm just busting out all over. . . . Things couldn't have worked out better," boasted Scott McNealy, the Mountain View, Calif., company's hard-driving, 33-year-old president and chief executive. "We are dealing now with insurmountable opportunity. If we screw it up, we will have only ourselves to blame."

The deal with AT&T that was announced Jan. 6, calling for the telecommunications giant to invest about $300 million in Sun, is the latest product of the computer company's audacious, make-things-happen style. That style, which some outsiders find arrogant, has nonetheless served Sun well. In less than six years, it has grown from the classic Silicon Valley start-up firm to a nearly $1-billion-a-year company feared by competitors many times its age and size.

Since 1982, Sun has waged an aggressive assault on the computer market with its technical workstations. The machines, commonly used by engineers and scientists, look like personal computers but actually are far more powerful and costly, with price tags in the $5,000 to $100,000 range. Early last year, Sun became the top-selling workstation manufacturer in the United States, toppling archrival Apollo Computer as the industry's leader; in 1987, Sun captured an estimated 23% to 25% of the $2.1-billion U.S. market.

FOR THE RECORD Los Angeles Times Tuesday February 2, 1988 Home Edition Business Part 4 Page 2 Column 6 Financial Desk 1 inches; 27 words Type of Material: Correction Digital Equipment Corp. reported $9.4 billion in sales in its fiscal 1987, which ended June 30. It was incorrectly described as an $8-billion-a-year company in Sunday's Business section.

Goal Possible, Analysts Say

Now McNealy and the rest of his management team are setting their sights even higher. The goal is to become a "broad-based, general purpose computing company" that can compete across the product spectrum with the likes of $8-billion-a-year Digital Equipment Corp. and even $54-billion-a-year IBM.

The plan doesn't necessarily mean that Sun will make everything from mainframes to personal computers. Rather, McNealy said Sun eventually will produce machines powerful enough to replace today's mainframes and small enough to fit easily on an office desk.

Analysts say the company's goal isn't so farfetched.

"They've got the strongest momentum of any (computer) company," said Jonathan Fram, an analyst with the Bear, Stearns & Co. investment firm in New York. "Sun is a major, serious player."

Some chafe at Sun's aggressiveness and wonder if the company has gotten a little too cocky. "Brash and arrogant is what the critics call McNealy," said one analyst. "But the management seems to have mellowed a bit now. They've learned to go at the world more gently, more subtly and with more sophistication."

McNealy at times still shows why his staff calls him the "old Scot." During a recent interview, he responded to a reporter's query about the company's goals with another question. "Why have goals?" he asked. "They only limit you."

Sun's success so far is testimony to its novel, "sell 'em standards" business philosophy. The deceptively simple strategy, which flew in the face of conventional wisdom when the company started operations, allows Sun to offer its customers machines that can be tied into nearly any other computer system.

The connection is provided through the Unix operating system, a standard set of internal computer instructions developed by AT&T in the 1960s. Unlike other operating systems, Unix can be adapted to run everything from the least powerful personal computer manufactured in South Korea to state-of-the-art supercomputers capable of guiding space warfare. AT&T owns the operating system and licenses it to computer makers.

Sun's founders turned to Unix because of their conviction that the computer industry needed an equivalent to the internal combustion engine. As Sun co-founder and software guru William Joy is fond of saying, the internal combustion engine is a sort of operating system that works equally well in a fancy Cadillac or a lowly Volkswagen Beetle.

"The strategy is elegant in its simplicity," said Robert Herwick, a technology analyst with Hambrecht & Quist in San Francisco.

However simple, it was a radical departure when Sun started up.

At the time, the prevailing wisdom was that high-powered computers, such as those made by Sun and its rivals, should operate on their own, unique systems. This approach, it was thought, would prevent copycat competition and ensure fat profits to those companies executing it well, such as Digital Equipment, Apollo and IBM.

But the strategy had a glaring weakness: The proprietary systems are, for the most part, incompatible. Digital customers, for example, couldn't add IBM personal computers to their networks; IBM mainframe users couldn't even add less powerful IBM machines to their systems. So, unless customers scrapped their existing systems and started anew, their computing choices were limited largely to what they were already using.